Management & Operations

NABI Head Balances Production Challenges, Looks to Future of New Vehicle Markets

Posted on April 1, 2004

Running a lean manufacturing process is uppermost in Patrick Rona’s mind. As CEO of North American Bus Industries Inc. (NABI), he is charged with running a tauter, more focused company to counterbalance past overseas production challenges created by foreign exchange rates. Vehicle production has actually been ramped down at NABI’s U.S. plant in Anniston, Ala., to follow this new credo. NABI has also decided to focus on its current core markets rather than spreading itself into uncharted territory. Despite its more conservative production stance, NABI has many irons in the fire, including its new 60-foot BRT bus, which is slated for delivery to Los Angeles for a pilot project by late summer. In addition, there is talk of introducing to the North American market another Optare-branded vehicle, the 22-foot, low-floor Alero. Rona spoke with Bill Luke, executive director of Buses International, at NABI’s Anniston headquarters about these challenges and initiatives. The CompoBus has a Buy America waiver. Do you think it will be renewed?
Actually, we have two waivers for CompoBus production, one for non-availability of the advanced composite body/chassis shells in this country and the other because, among other things, it was in the public interest to do more final assembly at the plant in Hungary at a time when we were just beginning commercial production of this product. We have now applied for extension of only the non-availability waiver because our parent company, NABI Rt., continues to be the only maker of plastic bus bodies and chassis in the world. We know of no reason why this waiver would not be granted, as none of the circumstances supporting this previously granted waiver have changed. Conversely, we have not sought an extension of our final assembly waiver because we plan on doing all of the final assembly at our facility in Alabama. I have heard that production of the steel buses might change from what takes place now in Hungary and in Alabama? Could you elaborate?
The weakening of the U.S. dollar, together with the rather peculiar recent strengthening of the Hungarian forint, have caused our Hungarian-based manufacturing costs to rise considerably. One of our strategies to deal with this foreign-exchange rate problem has been to increase the efficiency of our U.S. operations and transfer portions of production from Hungary to the U.S. Our lean manufacturing in the U.S. has freed up considerable factory space in Alabama and reduced time-to-market. This allows us to shift more of our production to Alabama to help solve the foreign-exchange challenges. With the longevity of the CompoBus an important factor, how has NABI marketed this feature when federal law allows replacement of buses after 12 years? How will the strategy affect repeat orders of CompoBuses?
You can never go wrong by making a great product. The engineering results and testing of our CompoBus are the most successful product development results we have ever had. The fastest Altoona test we have ever completed was done with our new 45-foot CompoBus. The list of testing issues were the lowest we have ever seen. And, yes, the structural integrity results, including, but not limited to, side-impact and roof-load testing, were very impressive. Among other things, this means our CompoBus customers can expect a longer vehicle life than traditional steel buses and increased usage of vehicles because CompoBuses are not as susceptible to damage in accidents and to the harmful effects of corrosion, as is the case with steel buses that do not have the body strength of a CompoBus. Given these test results, it is reasonable to consider that at the end of a 12-year period, the CompoBus could in fact still retain significant residual value, which is not the case with a steel bus. Thus, lifecycle costs are changed. We are confident in this. The other thing to keep in mind is the design of the CompoBus — it is truly sexy and out of the ordinary. At our recent celebration of Innovation in Transportation, the city of Phoenix announced that it had added 60,000 new riders in only five months of operating the CompoBus. City officials attributed this increased ridership, in considerable part, to “the look of the bus.” Accordingly, with CompoBus we believe we are increasing the desirability of, and demand for, transit, while at the same time reducing the operating costs of transit properties. I think that spells repeat orders for CompoBus. But you could ask the city of Phoenix and our other customers to be sure I have answered your question correctly. The production of NABI buses under the Optare name in the United Kingdom is fairly steady over the past few years. Is there a possibility of more Optare buses introduced in the U.S.?
Our success with the 30-LFN, an American derivative of Optare’s Solo model, suggests the possibility of more Optare models being introduced in this country. First, like the CompoBus, the design of this 30-footer is unique. Among other things, it is the only vehicle in its class to have the front axle mounted in front of the front passenger door, which, combined with a somewhat narrower than usual body, gives it a unique combination of excellent wheelchair accessibility and maneuverability in residential communities. We delivered 70 of them to Miami-Dade Transit in 2003 as part of what was the first contract to come out of the 2002 voter referendum and People’s Transportation Plan. Miami-Dade has received considerable praise from its riders with that vehicle and all of the commissioners wish for it to be deployed in each of their communities. I call it the Love Bus because it has a happy, open and free design that evokes love or happiness among its passengers. It’s kind of a “Love Actually” thing. In addition, our Altoona test of that vehicle was extraordinarily good, exceeding our expectations. So all of this tells me there is, indeed, the possibility of more American-made Optare models to be introduced in this country — perhaps the innovative Alero, which is an ideal 22-foot vehicle for rural and community transportation. When will the new 60-BRT bus by NABI be ready for the market? Does NABI have a strategy for bus rapid transit and selling the idea to transit systems?
The 60-BRT is actually a bit ahead of schedule, which calls for the pilot to be delivered to Los Angeles by late summer and the next 30 to be delivered by mid-2005 or in time for the opening of the Orange Line, which is what L.A. [the Los Angeles County Metropolitan Transportation Authority] is calling its first rubber-tired Metro line. Accordingly, we are very mindful of the significance this project has for L.A, NABI and the direction of the transit landscape. We believe BRT to be profoundly important, not just as a market opportunity, but as a mechanism for how public transportation can adjust to rapidly changing urban development with minimal risk and cost. The 60-BRT is, in a way, our third BRT vehicle. Our first was the low-floor 40-LFW, which was the highly reliable bus that L.A. needed in its initial Metro Rapid program. Our second is the 45-foot CompoBus, which is being used by Phoenix, Tempe [Ariz.] and soon by Los Angeles as their BRT vehicles, and is the first delivered vehicle for BRT to address the market’s demand for better styling, which has been viewed as critical to BRT development. This is why we call it the nation’s first second-generation BRT vehicle. The success of Phoenix’s Rapid service is already extraordinary. Please discuss NABI’s ownership status. What are the plans of the First Hungary Fund, which holds the majority of NABI’s ownership?
There is no change in our ownership. NABI Rt. continues to be a publicly traded company that is majority owned by the First Hungary Fund. The fund is a closed-end fund, which means it has and always has had an interest to sell its stake in NABI before the end of the life of the fund. But the fund has extended the holding period, and the majority of the shares continue to be controlled by the fund. Is NABI looking to be one of the global bus manufacturers in the next 5 or 10 or 15 years? If so are any further acquisitions possible?
No, our goal is to be the best at designing and making mass transit buses in our markets. We have ramped our production downward as a result of our lean manufacturing exercises and the completion of our new product introductions. We chose to focus on the markets we are currently in and to be choosy about the business we seek within those markets. A high percentage of NABI bus production has been for buses powered by natural gas. Do you expect this to continue, given that gas-powered buses are more expensive to buy and operate, that the infrastructure for gas is complicated and expensive, and the fact that the EPA will mandate diesel emissions to be on a par with natural gas by 2007?
Our experience with diesel engine manufacturers over the last few years tells us that they are struggling to meet consent decree or EPA regulatory requirements. Those increased requirements create technical difficulties with the use of these engines, as well as commercial difficulties with pricing and delivery terms. The same engine manufacturers are not having any such problems with CNG or LNG engines. This tells me that our gas-powered bus production will continue to be high and, perhaps, even increase.

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